Sponsor:
Financial support from the Spanish Ministry of Science and Technology (SEC2000-0395) and from the European Commission Key Action
"Improving the socio-economic knowledge base" (HPSE-CT-2002-00146). Thomas
Rønde gratefully acknowledges financial support from the European Commission under
the TMR network "The Evolution of Market Structure in Network Industries" (FMRXCT98-
0203) and under the RTN Network "The Economic Geography of Europe:
Measurement, Testing and Policy Simulations" (HPRN-CT-2000-00069).

Abstract:

We analyze firms’ incentives to cluster in an industrial district to benefit from reciprocal
technology spillovers. A simple model of cumulative innovation is presented, where technology
spillovers arise endogenously through labor mobility. It is shown that We analyze firms’ incentives to cluster in an industrial district to benefit from reciprocal
technology spillovers. A simple model of cumulative innovation is presented, where technology
spillovers arise endogenously through labor mobility. It is shown that firms’ incentives to cluster are
the strongest when the following three conditions are met: (1) the growth potential of an industry is
high; (2) competition in the product market is relatively soft; (3) the probability of a single firm to
develop an innovation is neither very high nor very low. Trade secret protection based on punitive
damages is, except in some extreme cases, beneficial for firms’ profits, stimulates clustering, and is
not an impediment to technology spillovers.[+][-]